Dairy mandatory code of conduct wins support from Saputo

Taken from THE WEEKLY TIMES, Author: Peter Hunt

CANADIAN dairy giant Saputo has backed farmers’ and Australia’s competition watchdog’s calls for a mandatory code of conduct to improve contracting practices between farmers and processors.

Saputo chief executive Lino Saputo junior, who is touring Australia, announced today the company would back a mandatory code.

The decision follows resistance from most processor representatives on the Australian Dairy Industry Council and the leadership of the Australian Dairy Farmers lobby group, who have spent months resisted supporting a mandatory code.

Saputo’s decision stunned supporters of a mandatory code, such as the NSW Dairy Connect group.

“We’re a bit shell shocked,’ Dairy Connect president Graham said Forbes.

“We’ve been fighting for this for ages and been stonewalled. Now Australia’s largest dairy processor has come out in support of mandatory code.”

“I’d be interested to hear ADIC’s and ADF’s views now.”

Saputo has already dumped clauses in its Warrnambool Cheese and Butter contracts after the Australian Competition and Consumer Commission raised concerns they were unfair under existing consumer law.

The ACCC had warned WCB that its contracts with farmers contained terms that allowed it to unilaterally vary the milk price and other milk supply terms, with the farmer unable to terminate the milk supply agreement early without incurring a financial penalty.

In April ACCC released its final report into the dairy industry, which concluded “a mandatory code of conduct would improve the quality of information and price signals, enable fairer allocation of risk, and remove restrictions on farmers’ ability to switch processors.

“While the introduction of a mandatory code will not overcome farmers’ relative bargaining disadvantage, it will mitigate some of the significant negative consequences.

“The removal of barriers to switching will also enhance existing competition between processors for raw milk.”

At the time ACCC deputy chairman Mick Keogh said a mandatory code of conduct would address problems arising from the large imbalance in bargaining power and information that exists between dairy farmers and processors.

“Currently, processors can impose milk prices and other terms of milk supply contract terms that are heavily weighted in their favour. Some milk supply contracts also contain terms that restrict farmers’ ability to change processors for a better offer.”

“These issues ultimately harm dairy production efficiency and reduce the effectiveness of competition between processors,” Mr Keogh said.

The ACCC recommended a mandatory code: should

BE designed to improve transparency and certainty in contracts.

SET minimum standards of conduct and provide for dispute resolution processes.

CONTAIN obligations on processors to improve the timing and manner of

processors’ communication of price and other key information.

INCREASE farmers’ ability to switch processors in response to significant changes to their trading terms.

The ACCC’s inquiry also stated:

PROCESSORS and farmers should acknowledge in writing the terms and conditions for milk supply .

PROCESSORS should simplify their contracts where possible, including by minimising the number of documents and clearly indicating which documents contain terms and conditions of milk supply.

PROCESSORS should provide all contractual documents simultaneously before the commencement of the dairy season or contract term

MILK supply contracts should not include terms which unreasonably restrict farmers from switching between processors.

THE industry should establish a process whereby an independent body can mediate and arbitrate in relation to contractual disputes between farmers and processors.

FARMERS should ensure they have properly considered the legal and financial implications of their contracts with processors.

PROCESSORS should publish information identifying how their pricing offers apply to individual farm production characteristics to enable better farm income forecasts.